Trade body Oil & Gas UK’s annual report said an active exploration market remained crucial to the success of the UK continental shelf, but warned the government that the fiscal environment was crucial.

The report comes after British Gas owner Centrica told the EDP it expects to invest several hundred million in “exciting projects” in the region over the next few years.

Chief executive of Oil & Gas UK Malcolm Webb said that with continued investment in exploration and production in the oil and gas industry, the significant economic benefits this country reaps from oil and gas would “flow for a long time to come”, but he warned the right fiscal environment was crucial.

He said the industry welcomed the improvements in the tax system for the oil and gas industry that were announced by the chancellor in the Budget in March and said the additional levies in 2011 had caused significant damage to the industry.

He said: “Oil & Gas UK is keen to continue to work closely and openly with government in pursuit of our shared and common purpose of maximising the recovery of Britain’s offshore oil and gas reserves.

“Challenges remain. We will need to address the decline in production which accelerated unexpectedly last year as well as the fall in exploration drilling.”

He also raised concerns about the “ill-conceived” offshore safety regulation proposed by the EU Commission.

He said: “If enacted, this new law would be a serious backward step for safety in the UK’s offshore oil and gas areas and for our industry as a whole.”

The report also forecast the costs of decomissioning oil and gas installations. It said it expected it to be £28.7bn from 2012 onwards and if all potential developments currently reported to the industry body were developed, that could rise to £35.9bn, including £3.8bn in the southern North Sea. In the short term – between 2012 and 2016 – Oil & Gas UK forecasts that a total of £3.3bn will be spent on decommissioning with half of that sum in the northern North Sea (NNS), with the central North Sea (CNS) accounting for a third of the expenditure and the southern North Sea (SNS) the remainder.